Sugars, particularly trehalose and sucrose, are used to stabilize liposomes during hydration (freeze-drying and air-drying). As a result, dry liposomes are trapped in a sugar glass, a supersaturated and thermodynamically unstable solid solution. We investigated the effects of the glassy state on liposome fusion and solute retention in the dry state. Solute leakage from dry liposomes was extremely slow at temperatures below the glass transition temperature (Tg); however, it increased exponentially as temperature increased to near or above the Tg, indicating that the glassy state had to be maintained for dry liposomes to retain trapped solutes. The leakage of solutes from dry liposomes followed the law of first-order kinetics and was correlated linearly with liposome fusion. The kinetics of solute leakage showed an excellent fit with the Arrhenius equation at temperatures both above and below the Tg, with a transitional break near the Tg. The activation energy of solute leakage was 1320 kJ/mol at temperatures above the Tg, but increased to 1991 kJ/mol at temperatures below the Tg. The stabilization effect of sugar glass on dry liposomes may be associated with the elevated energy barrier for liposome fusion and the physical separation of dry liposomes in the glassy state. The half-life of solute retention in dry liposomes may be prolonged by storing dry liposomes at temperatures below the Tg and by increasing the Tg of the dry liposome preparation.